George Osborne welcomes Europe-wide banks levy

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Indy Politics

Chancellor George Osborne welcomed plans for a Europe-wide tax on banks today but insisted the proceeds should not be ring-fenced to deal with future failures.

Mr Osborne was speaking after talks with US Treasury Secretary Timothy Geithner at 11 Downing Street - where they were also joined by Prime Minister David Cameron.

The European Commission this morning unveiled proposals for a compulsory levy to form the basis of a multibillion-pound fund which would be used to "manage" financial collapses.

Mr Osborne said: "The Conservative Party made an argument at the recent General Election that the United Kingdom should have a bank levy.

"We are glad to see elsewhere in Europe others agree and we are clear that the purpose of that bank levy is to raise money that can help - it will be used for general expenditure purposes."

Mr Geithner, on the London leg of a series European talks, will later meet Bank of England Governor Mervyn King before flying to Germany.

He said EU plans to support eurozone countries facing economic troubles have "the right elements" but also said implementation needs to begin to start calming markets.

Mr Geithner denied fears the UK is failing to do enough to stimulate growth, saying he believes the Government's economic and fiscal plans have "the right balance and the right objectives".

Under Commission proposals unveiled by internal market commissioner Michel Barnier, the proceeds from the tax would be collected and administered individually by national governments.

The reserve would not be used directly for bailouts but "to ensure that a bank's failure is managed in an orderly way and does not destabilise the financial system".

The UK, which has said it would go ahead with a banking levy unilaterally if necessary, believes ring-fencing the proceeds would create a "moral hazard" - with banks more likely to take risks if they knew there was a rescue fund.

Mr Osborne said: "We will be setting the design of that levy going forward but I think the IMF has created a good framework for how a bank levy might look."

Mr Geithner, who earlier met Business Secretary Vince Cable, said he hoped to build a "strong, co-operative approach to the big economic challenges of our time".

He said there was "very broad support" across the G20 for the principle of a bank levy and denied it would need to be "perfectly uniform" internationally in order to work.

What was important was that taxpayers knew banks would bear the cost of future crises.

Asked if the US retained concerns over European efforts to stimulate growth, he said: "I am not worried about that concern in the UK now.

"I think the Chancellor has laid out, with the Prime Minister and the coalition, a very strong, compelling direction for the country on the fiscal side and the economic side.

"I think they have got the right balance and the right objectives and I think they are demonstrating that you have to act so people can see you are committed to follow through on the broad objectives."